How your pension affects your state benefits

Lauren Morton | 10/01/2019



Taking money out of your pension could affect your entitlement to certain means-tested benefits, such as Council Tax Support, Housing Benefit or Pension Credit. The amount you receive from these benefits is worked out based on how much income and savings you have, which includes any workplace or personal pensions, as well as your state pension. Here’s a brief rundown of how the rules work.

Seek professional financial advice if you’re not sure how much of an impact your pension will have on your benefits.

Age matters

If you haven’t yet reached Pension Credit age, when working out your eligibility for benefits, only the cash you actually take out of your pension will be counted as income or capital, rather than the full amount of your pension you’re entitled to take.

That means the more you take out of your pension, the more its likely to affect your entitlement. If you don’t withdraw any of your money from your pension, then you won’t be affected when applying for means-tested benefits.

The Pension Credit qualifying age for both men and women is based on the current state pension age for women. You can find out your state pension and Pension Credit age on this Government site.

If you're already at Pension Credit age

If you’ve already reached Pension Credit age, then when you apply for any means-tested benefits, both money that you take out of your pension and that you leave in it will be taken into consideration.

Not taking money out of your pension won’t stop your benefits being reduced or stopped, nor will taking out a lump sum and spending it.

That’s because if you don’t take an income, the Department for Work and Pensions will instead take a ‘notional’ amount of income into account when assessing your benefits. They’ll do this by working out how much you’d get if you used your pension to buy an annuity, or income for life.

If you take a lump sum out of your pension and spend it, this will still be treated as capital and the DWP will want you to be able to prove that you haven’t spent it deliberately to qualify for benefits.

Your state pension and benefits

If you’re weighing up whether to top up your state pension due to gaps in your National Insurance Contribution record, perhaps because you weren’t working for a while, bear in mind that getting more income from the state pension could also reduce your benefits.

That means topping up might not always be in your best interests if it means you might lose other benefits. Get professional advice if you’re not sure how your state pension or other pensions could affect your entitlement to benefits.

You can find out more about pensions and means-tested benefits at the government’s Pension Wise service.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

Simply sign up online and we'll do all the hard work for you.